Theres nothing quite like your first Fathers Day as a new dad. But once the excitement wears off, panic can set in. Especially when you look at how expensive having a baby can be. According to a 2013 report by the US Department of Agriculture, most middle-income families can expect to spend an average of $245,340 on their child by the time he or she turns 18. Add the cost of college tuition to that, and you may want to reach for the antacid. That said, covering your childs expenses for the next two decades can actually be more feasible than you think. All it takes is a little extra planning. Here are seven financial tips that every new dad – or mom, for that matter – should know.
- Create a budget – and stick to it. While living within your means is always a good idea, its a really good idea now that you have another mouth to feed. Resist the temptation to use your newborn as an excuse to purchase stuff you cant really afford – and dont really need. If you have a car with four doors and four tires, you already have a family car. Your current residence is probably big enough to accommodate the baby (at least for the time being), so try to put off a major move for as long as possible.
- Get a Social Security number for your child ASAP. To open a savings account in your childs name and claim him or her as a dependent on your income taxes, your child must have a Social Security number. So the longer you wait to pick a name and apply for one, the less time youll have to save for his or her college tuition.
- Start saving for college right away. Many new parents underestimate how much theyll have to spend on their childs college tuition. Fact: By 2030, the cost of a public four-year college is expected to approach a quarter of a million dollars. Thats why it pays to start early. Educational funds like a 529 College Savings Plan or a Coverdell Account provide tax-advantaged savings – and only have a minimal impact on your childs eligibility for financial aid.
- Dont lose sight of your retirement. Its easy to do, but new parents should avoid shortchanging their own retirement funds when the stork finally comes. A Roth IRA can be used for both retirement and college, making it a great way to protect you and your spouse while saving for your childs future. Its critical to maximize your retirement savings potential while youre still working. When the time comes to pay those tuition bills, there are other ways to make up for the shortfall – like a home equity loan.
- Build a safety net of savings. Its a good idea to sock away six months to a years worth of income in case you or your spouse are laid off – or suddenly unable to work due to an accident or unexpected illness.
- Write a will. If you have a child under the age of 18 and there are no documents pertaining to how you want that child to be cared for in the event of your passing, its up to a court of law to decide whats best. Thats why you need to create a will stating who will care for the child in case the unimaginable happens. Even better, draw up an entire estate plan that includes a will, a power of attorney and a healthcare proxy.
- Make sure you have enough life insurance. Life insurance replaces your income in the event of your death, and ensures that your children, spouse, and anyone else who depends on you financially can support themselves in your absence. If you and your spouse dont have life insurance, do your child a favor and get some now. Worried you cant afford it? Dont be. Healthy men in their 30s and 40s can buy a term life insurance policy worth hundreds of thousands of dollars for less than they spend on coffee every day. Because you only pay for it as long as you need it (e.g., 10, 20, or 30 years), term life insurance costs considerably less than most whole life insurance policies. Its also a lot more versatile – your policy amount can easily be increased to protect your growing family.
Before making any major changes to your portfolio, we recommend consulting a financial expert. And to all you new dads out there, Happy Fathers Day!